Why is financial education important?

Those who know me well know that, for a number of years now, I have been opining on how I strongly believe that financial education is becoming ever more critical in this day and age, not only for investment purposes but also for our day-to-day financing needs. Financial education, is normally associated with the world of investing but the wider use of the term is becoming increasingly important in our everyday lives.

Irrespective of a person’s status, income as well as aspects such as job, status, income, age or any other possible demographic; financial education is becoming essential for the average family trying to make ends meet or even perhaps on deciding how to balance its budget, purchase a new home, cater for day to day needs, make finance available for the education of their children, as well as, more importantly, budget and plan on what income s/he will be receiving upon retirement.

It should be seen in the greater scheme of things, and should be viewed as a holistic approach to long term financial planning. Not on an individual basis (how much can I save for myself), neither for the short term (how much money I require in 5 years’ time), but we need to cater for our family, for their needs, today and yes, as much as 30-40 years down the line.

People have always been responsible for managing their own finances on a day-to-day basis, such as catering for insurance spending for example, go on holiday, buy that longed for item of jewellery – but recent developments in the financial world have made financial education and awareness increasingly important for financial well-being and standard of living.

Per primis, we must acknowledge that financial markets are not what they used to be. As opposed to what uninformed investors may think, they don’t move in a straight line and have become increasingly sophisticated. Investors are faced with an array of products and platforms from which to base their investment decision, with a large range of options. This makes the need for financial education a no-brainer as it will ultimately will shape an investor’s line of thoughts, responsibility and risk for financial decisions that will have a major impact on an individual’s future lifestyle.

Pensions offered by governments for example are no longer sufficient to sustain a lifestyle post-retirement. This has resulted in investors seeking other alternatives away from what the government has in store for us. With life expectancy on the rise, people’s decisions on pensions is particularly important as this will ultimately determine the extent to which individuals will be enjoying longer periods of retirement. Individuals will not be able to choose the right savings or investments for themselves if they are not financially aware of what there is available in the market.

Financial education and literacy will go a long way in guiding individuals on their retirement plans and they will inevitably be more likely to save and to challenge (in a good way) financial service providers to develop products that truly respond to their needs. This, in my opinion, should have positive effects on both investment levels and economic growth.

Disclaimer: This article was issued by Mark Vella, investment manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.